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February 21, 1950

C O N G R E S S I O N A L K K C O R D - ^ H O U S E FEBRUARY 21

Mr. RICH asked aAfl w^s j;iv< ,sion to extend his' remaglig-ify ORD and include questions arid answers by Paul O. Peters.

- - Mr. SHAFER. Mr. Speaker, I ask % unanimous consent to extend my re-

marks atu$fcis~point in the RECORD. The SPEAKER. Is there objection to

the request of the gentleman from Mich-igan? .

'There was no objection. FEDERAL RESERVE BOARD

• Mr. ! SHAFER. Mr. Speaker, last Wednesday, February 15, in an extension of remarks.I included a newspaper state-ment pointing out the great dangers in-herent trv the packing of the Federal Reserve Board with pliant men who may fail to carry out the intent of the law which created that Board. Today I have a few remarks of my own to make whlfch, I believe, will show how a board such as

, this can be packed. I draw my material from the Board's own records.

The spirit of the Banking Act of 1935 was clearly violated in the past by the appointments of Rudolph M. Evans; the late Lawrence Clayton; M. S. Szymczak, ar\pl to a certain extent, Marriner S. Eccles. T. shan take these cases on in their order. , :

First of all, , let me point out that the law provides that no more than one

„ Governor shall be appointed from the same Federal reserve district at the same time, and it also provides that no mem-ber of the Board who has served a con-secutive 14-year term shall be eligible for reappointment.

In the case of Governor Evans, he was appointed from Virginia presumably a resident of that State, whereas as a mat-ter'of fact he was a permanent resident from the State of Iowa until the time he

t. wafc appointed to the Corn-Hog Section of'the Agricultural Adjustment Admin-istration, Department of Agriculture, in 1933 by Henry A. Wallace, a long-time personal friend. In fact, he is regarded as a protege of Mr. Wallace. While serv-ing*4n the Agriculture Department he was a landowner in the State of Iowa afid maintained continuously large hold-ings and business interests and every year made several extended visits to his residence for the purpose of looking after his interests. He had a Washing-ton address, of course, in Alexandria, like thousands of other Federal workers, but I am certain that he, like thousands of others, regarded i t as a temporary address until the question of his legal residence came up in March of 1942 when he was being considered for ap-pointment as a member of the Federal Reserve Board. President Roosevelt was apparently advised that he was a bona fide resident of Virginia and apparently the Senate was1 likewise advised because the appointment was confirmed as a bona fide resident tof Virginia.' Since his appointment I understand that he has maintained his itctivities in Iowa, has absolutely no interest, commercial, political, or otherwise, in Virginia, • ex-cept that of his living quarters, .1 am sure he still regards himself as an Iowan and spends much time each year in Iowa. The only reason for the deliber-

, ate evasion of the spirit of the law in

- ' jfeottnection with this lush appointment? I T years at $15,000 a year, was that Evans was a very close friend of .Henry Wallace, and was a close friend of Mar-riner Eccles, who wanted him on the Board of the Federal Reserve System and found that it was impossible to have him appointed from Iowa because that State is located in the Seventh Federal Reserve District, Chicago, and the dis-trict already had a member on * the board, Mr. M. S. Szymczak.

Another obvious violation of the spirit of the Federal Reserve Act, if not the letter, is apparent in the reappointment of M. S. Szymczak. The Federal Reserve Act provides that no member of the Board of Governors, having served a con-secutive 14-year term, shall be eligible for reappointment as a member of the Board.

M. S. Szymczak, of Chicago, was first appointed to the Federal Reserve Board in June 1933 and served continuously until February 1, 1936, when the tech-nical status of the whole Board was changed to that of Board of Governors of the Federal Reserve System. Without • a break in service he was designated by the President to continue on with the changed organization and received a 12-year appointment dated February 1,1936, and expiring February 1, 1948. < I t will be noted that at the expiration of the term in February 1948, he had served ' approximately 15 years as ft member of the Federal Reserve Board.

In the fact of this continuous service In excess of 14 years, Szymczak's appoint-ment was urged by Chairman Eccles and

.was finally agreed to by the President and he was reappointed in February 1948 for a full term of 14 years. At the con-clusion of this present tenn-ia 4S62. he will have served continuously fcs ft mem-ber of the Federal Reserve Board for approximately 29 years and will have reached the age of 68 before his term expires. -

I t is admitted that the Congress never intended that one mac should serve so long" tin the FederftT Reserve Board, or else the Congress would not have placed in the law the fcqittlve prohibition against the reappointment of any man who had served a 14-year term. The trick here was the placing in the act by the man who wrote the bill of the word "con-tinuous/'

Lawrence Clayton, recently deceased, was appointed as a member of the Board of Governors of the Federal Reserve System on February 14, 1947, to fill a vacancy which had been left Uhftl?£d 8 or 10 years previously. In this ap-pointjnen,t the spirit of the law. was violated in the same manner as i t was in the appointment of Bvans, because al-though Clayton was appointed as a resi-dent of Boston, he had been, in fact, a resident of the State of Utah since child-hood. ; Clayton was born in Salt Lake City in 1891. In 1924 he became associated with Marriner S. Eccles in the First National Bank of ,Ggden and continued in that capacity of Eccles' right-hand men until 1934, when Eccles brought him to Washington as Special Assistant to the Chairman—Eccles—in December 1934.

In January 1945, Eccles had Clayton moved* Boston, Mass., where he assumed the nominal position; as presi-dent of Clayton Securities Corp., of Bos-ton, a company owned and pperated by Clayton's brother.' I t was said at the time that the purpose of ih is move was to make Clayton eligibly, either for a position as president of/the Federal Re-serve Bank of Boston, ttj for appoint-ment to the Federal ReserveBoard from the Boston District fca succeed John K. McKee, wfcose term «ras to expire in February 1946. I t is understood that President Roosevelt had agreed to this appointment. Unfortunately for Clay-ton, Roosevelt died, Truman became President, and Governor Vardaman was designated for the appointment to suc-ceed McKee..

The Board of Directors of the Boston Federal Reserve Bank di^ pot look with favor upon making Clayton president of that institution, and instead of him, they selected Laurence Whittemore.

Eccles then went to President Truman and demanded that ClayRm be appointed to fill the long standing yacancy on the board and Clayton was', therefore, ap-pointed, presumably, asva resident of Boston, Mass., in the First Federal Re-serve District. In fairness to President Trumah, it should be said that he was told that Clayton was a bona fide resi-dent of Boston and had been there for many years; and this same misinforma-tion was passed on to the United States Senate, and Clayton's appointment was confirmed in February 1947.

The necessity fpr evading the law in this case is obvious. ^Clayton was and had been widely known as Eccles' "Man Friday" for more thari 20 years, and was known to do Eccles' bidding without ques-tion in all matters offlcfel and most mat-ters personal. Since Eccles himself was appointed from the Twelfth Federal Re-serve District, San Francisco, in which Utah—Clayton's real home—was located, i t was necessary to move Clayton to a district from which rffl Governor was then serving, and because of the loca-tion of Clayton's brother in Boston, that locale naturally sugggpted itself. The Boston district embraces the States of Maine, New Hampshire* Vermont, Mas-sachusetts, Connecticut, and Rhode Island, and yet in all of that area—one of the most important and intelligent and wealthiest districts in all America^-not one bona flde resident was offered the appolntihent, but this temporary resident, hand-picked a^id moved into the district for the purp<|se, was selected to represent the great area embracing the New England Statef, on the Fed-eral Reserve Board, when he had been a temporary resident of that area less than 2 yeatfs.

Clayton died in December 1949. I made a study of these interesting

developments In the Federal Reserve Board after I read a statement which I inserted in the RECORD last Wednesday, and I want to assure the public that packing the Federal Reserve Board is entirely pdsiftble, as the record reveals.

Of course/ we art!; unable to deduce that there-Wfttf not a very good reason for this packing, and many of us feel that we know what the reason is. There

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J2/21/50 continued 1950. %'[. CON' Is one thing that will lead us away f rom • democracy toward fascism niore quickly • than anything else ®nd that is the at-tempt to 'seize poWt in this country through the banks. . I f the banks can control i t by-ene man or a little clique, industry win be-the next to fal l in line.

We have a lot of worries in this coun-try, many of them from abroad, but I think it is time for us. tq do some worry-ing here at home. I am interested, for the s«k« of the future of ot*r Republic, to determine what effect this deliberate packing of the Federal Reserve Board has hadtupon the actions of the Boards 1

in the p$tt tew years.

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Federal Reserve Board

EXTENSION OP REMARKS OP

HON. PAULW. SHAFER OP MICHIGAN

I N THE HOUSE OF REPRESENTATIVES Wednesday, March 8, 1950

Mr. SHAPER. Mr. Speaker, since my speech in this House on February 21 in which I called attention to the un-Amer-ican and immoral packing of the Federal Reserve Board I have been deluged wi th letters, telephone calls, personal visits, and telegrams from bankers, business-men, lawyers, and other citizens f rom all parts of the United States, suggesting that I further explore the subject. I have received many letters on the sub-ject; a truly amazing number in view of the very limited publicity given to my remarks. They reveal a state of mind— a fear of the powers and autocratic con-duct of the Federal Reserve Board—on the part of bankers, bank customers, and business people generally that is quite different from any situation I have ever before noted in this Republic; and I th ink I am well advised to go into the matter more thoroughly and carefully.

I was very much surprised that no communication was sent to me by Mr . Thomas B. McCabe, Chairman of the Board, but I did note a rather impas-sioned one by the former chairman, Mr . Marriner Eccles. This indicated a weird situation of the Board wherein a former Chairman was mysteriously bounced from his job by President Truman, i n a situation which has never been ex-plained. Was i t that the White House was aware of this packing procedure while Mr. Eccles was Governor, and in its soft-peddling way removed him from his position of one-man rule, surrounded by his stooges, and now sti l l another stooge is yet in the person of the Chairman of the Board? I assume the communica-t ion is intended as a defense of his suc-cessful campaign to set up the Board as an obedient and submissive group who would do bidding without question or public remark. But, as a matter of fact, Mr. Eccles* letter openly confirms the most important, criticism I have made; to wit, that the letter and spirit of the law has been violated in the selection of the Governors by failure to regard that provision intended to insure equitable geographical representation on the Board. Mr. Eccles does not deny that Governor Evans, a native-born, lifelong citizen of Iowa, a man who even to this day considers himself and refers to h im-self as an Iowan because of his large farming and business interests i n that State, was, nevertheless, appointed f rom the grand Old Dominion State of Vi r -ginia, although he was only a temporary

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A2122 C O N G R E S S I O N A L R E C O R D — A P P E N D I X MARCH 16

resident of that State because of his im-portation here to the Agricultural De-partment by Henry Agard Wallace, as Wallace's personal aid and prot6g<§, as a corn-hog plower-under.

Mr. Eccles does not deny that the late Governor Clayton, a native-born, life-long citizen of Utah, Eccles' personal pro-teg6 and clerk for more than 20 years, al-ways, like Eccles and several members of his staff, a loyal Utah citizen, was ap-pointed from, of all places, the Common-wealth of Massachusetts and Boston. What an unkind and underhanded blow to the ghosts of the sturdy New Eng-

nders whose high principles of honesty nd fair play have played such an impor-

tant part i n building the moral fiber of this Nation. I n my previous talk on this subjectv I explained why the late Mr. Clayton was said to have moved to Bos-ton shortly before his appointment to the Board.

Mr. Eccles did not deny that Gover-nor Szymczak was reappointed at his, Mr. Eccles' insistence, in 1948 for a full term of 14 years, in spite of the fact that he had been serving continuously and without interruption as a member of the Board for more than 14 years; and that by his reappointment he would (and there seems no reason for his throwing up the "cushy" job)—if he serves out his term—he will have been a member of the Board continuously and without interruption for more than 29 years. This, in the face of positive provision written into the law by this Congress that no member of the Board would be eli-gible for reappointment if he had served a continuous term of 14 years. I am not interested in the devious evasions in-dulged in by Mr. Eccles, his staff of law-yers, and others, in accomplishing this continuance in office of one of Mr. Eccles' most loyal henchmen. What I am in-terested in is calling attention of this Congress to the brazen disregard of the letter and spirit of its laws, by these bureaucrats who, apparently and by their high-handed, star-chamber meth-ods, regard themselves as untouchable and above the law and this Congress.

Mr. Eccles does not deny that in his own personal case as a member of the Board, the spirit of the law has been vio-lated so that he, by having himself juggled and shifted from one term to another, wil l be permitted to serve a far greater number of years than the 14-year maximum which this Congress thought i t was fixing when the Federal Reserve Act of 1935 was enacted. I f Mr. Eccles serves out his present term he will have seryed as a member of the Board continuously and without interruption more than 24 years.

Stripped of all nonessential talk and consideration, the cold fact is that the great northeastern, southeastern, Southern, and southwestern sections of the United States are represented on the seven-man Federal Reserve Board by only one single bona fide resident of any of those vast areas, and that lfaan is Thomas Bayard McCabe, a New Deal, Fair Deal, Republico Democrato, hailing from Chester, Pa. Mr. McCabe is a

pleasant, well-meaning and agreeable sales gentleman, with a limited knowl-edge and experience in Federal Reserve matters. The administrative ability as a public official of this delightful and suc-cessful sales manager of a toilet paper concern was thoroughly and painfully brought to light during the 4 months of hearings by the Senate committee which was considering his appointment 2 years ago. His ability as a private business executive is best illustrated by the fact that his paper company has progressed more in the few short years he has been away from it than it did during the entire period of his long career as its active president.

There is nominally one other repre-sentative of the Eastern States on the Board, a retired businessman named Draper, whose 10-year term on the Board expired on February 1 of this year, and he is serving in the embarrassing capacity of a "hang-over" awaiting the appoint-ment of his successor. Governor Drap-er's service has been marked by routine and unquestioning obedience to Mr. Ec-cles, and I doubt that the minutes of the Board will reveal more than two in-stances during the entire 10 years that he voted contrary to Mr. Eccles' wishes.

At present there are only five members of this seven-man Board serving proper terms, Messrs. McCabe, Eccles, Szymczak, Evans, and Vardaman—with Mr. Draper occupying a sixth place because of failure of the President to nam« his successor. Governor Evans is absent from the Board most of the time, and-has been for the past year or more, so four active members are conducting the Board's business in Washington, with Mr. Draper standing by "on sufferance," as i t were. This is not a healthy situation, especially in view of the casual attitude of Mr. McCabe as an administrator and leader. I t is a sit-uation much to the liking, I presume, of Mr. Eccles and his hand-picked staff, because i t gives them continued and practically undisputed sway in Board matters.

And my prediction is that unless this Congress puts some pressure in the prop-er place the two vacancies on the Board will not be filled, but the situation wil l be allowed to drag on indefinitely.

I note in the Eccles* letter no hint of the customary declaration that he was speaking as an individual and not for the Board. Of course, I thought—and so did the public, I believe—that Mr. Eccles had been repudiated and removed as head of the Board when Mr. McCabe was ap-pointed Chairman In 1948. But after looking into the matter and asking many questions of people who should know, I don't seem to find any evidence that Mr. McCabe has done much else than to physically occupy the Chairman's office in the Federal Reserve Building, and causing Mr. Eccles the slight inconveni-ence ef moving a. few doors down the hall on the same floor.

As to Governor Vardaman, he is one of the closest personal friends of Presi-dent Truman in Washington official life and there is less said about it than of any other man. I found out from long-

time employees of the Federal Reserve Board, who are very uncomfortable about the one-man rule there, that Mr. Varda-man is regarded as the great dissenter in many of the Board's policies and I assume that his dissents reflect a very uncomfortable feeling of the man in the White House who sees a bureaucrat re-maining as the real Chairman of the Board even after he has been displaced.

Certainly there has been no change in p&licy, or in basic thinking, or in arbi-trary and bureaucratic conduct by the majority of the Board and Staff. I t is true that the statements of the Board and its communications with the vari-ous committees of the Congress have be-come more verbose and longer and al-most wholly innocuous and "straddling" in their content. But the old staff is still on the job, efficient, intact, and impreg-nable. Mr. McCabe has been allowed to bring in one economist, an excellent man, so I am told, by the name of Riefler, to try and teach McCabe the ABC's of na-tional economics, fiscal finance, and oth-erwise guide him. This man has done a good job, i t is said, but is apparently getting discouraged over his pupil, and i t is rumored that he is considering be-coming a member of the President's Eco-nomic CoQncil—that new-thoughtist body headed by Mr. Leon Keyserling.

I am further informed that Mr. Mc-Cabe also brought along with him an able young assistant ^vho up unti l a few months ago acted as his personal secre-tary. But late last year he too became discouraged, i t is said, over the impreg-nability of the Eccles selected staff, and resigned his position with the Board and went back home to Chester, Pa., and the paper company.

As things now stand, Mr. McCabe is the nominal head of the Board, but he has not made one single major change in personnel or policy during his 2 years of administration. Since he has, presum-ably, the backing of the administration, he could make almost any change he de-sired; so, I am bound to conclude, in view of his acquiescence and failure to act, that he, like some of his colleagues, is satisfied to be and function in all things as an Eccles satellite, or at least, as a messenger boy for Eccles' hand-picked board, and for Eccles' more thoroughly hand-picked staff.

I t should be born? in mind that this Board is, theoreticaly, a direct agent of this Congress. I t operates without any supervision whatsoever as to policies, personnel, or expenditures, except those broad provisions of congressional enact-ments directly applicable to the Board. I t is not subject to the Bureau of the Budget. I t is not subject to the Comp-troller General. I t derives its money from assessments on Federal Reserve banks made by the Board itself, and without recourse on the part of the banks. I t spends its moneys thus derived without supervision or limitation or ex-amination from any other Federal agency. I t can employ as many people as i t desires, and whoever i t desires, without reference to any other person or Federal

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